Pension Fund Says Hedge Fund Manager Duped Investors

Fletcher is being sued by the MBTA Retirement Fund and some of his own hedge funds on fraud accusations, according to a news report from The Boston Globe. The lawsuit, filed in New York, accuses Fletcher Asset Management and other parties of conducting a “long-running fraud” in which they misused client money for their own benefit, inappropriately took inflated management fees, and overstated the value of assets.

The Boston Globe reports the MBTA pension fund invested $25 million with Fletcher in 2007 on the advice of the pension fund’s former executive director, Karl White. White pitched the investment to the pension fund nine months after he had resigned from the MBTA to work for Fletcher.

Fletcher has told regulators his firm managed assets of $550 million. But the true figure “was always far less, as can be seen now, when honest and accurate valuations are applied,’’ according to case documents.

Plaintiffs in the case include the MBTA fund, the Fletcher Fixed Income Alpha Fund, and three other Fletcher entities. They are seeking $50 million, as well as management and attorney’s fees and interest. The funds suing Fletcher are considered separate legal entities, so they have the right to sue to recoup money for their investors, the news report says.

The lawsuit is being pursued by the bankruptcy trustee, Richard Davis, the person responsible for managing claims by creditors. The Boston Globe report suggests Davis anticipates further lawsuits to emerge in the coming months.

Most of Fletcher’s hedge funds have been in bankruptcy since 2012, court documents and news reports show. The Boston Globe reports the U.S. Bankruptcy Court for the Southern District of New York recently confirmed a plan to liquidate one of the entities, Fletcher International Ltd. This latest lawsuit followed from that plan, the news report says.

Though the MBTA and three Louisiana pension funds are all pursuing Fletcher to recoup funds, it is unclear how much money he has (see “La. Pension Funds Petition for Liquidation of Hedge Fund”). The troubles of in Fletcher’s business came to light in 2011, when he sued fellow owners at the Dakota building in Manhattan for discrimination when they refused to let him buy a fifth apartment there, The Boston Globe reports.

The Securities and Exchange Commission and the FBI have been investigating Fletcher Asset Management. Massachusetts Attorney General Martha Coakley is investigating the MBTA pension fund over the transaction. She also urged the fund’s board to be more transparent in its dealings.

In a statement, the MBTA pension fund acknowledged the lawsuit but declined to comment further, according to the news report. In January, the pension fund also sued the auditor Grant Thornton in Chicago, Quantal, and another auditor, EisnerAmper of New York, in the Fletcher matter, according to the news report.